[Federal Register Volume 63, Number 215 (Friday, November 6, 1998)]
[Notices]
[Pages 60030-60032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29784]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23515; 812-10554]


Ranson & Associates, Inc., et al.; Notice of Application

November 2, 1998.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 
2(a)(32), 2(a)(35), 14(a), 19(b), 22(d), and 26(a)(2) of the Act and 
rules 19b-1 and 22c-1 under the Act, and under section 11(a) of the Act 
for an exemption from section 11(c) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
unit investment trusts (``UITs'') to: (a) impose sales charges on a 
deferred basis and waive the deferred sales charges in certain cases; 
(b) conduct certain offers of exchange of units; (c) publicly offer 
units without requiring the sponsor of the UIT to take for its own 
account or place with others $100,000 worth of units; and (d) 
distribute capital gains resulting from the sale of portfolio 
securities within a reasonable time after receipt.

APPLICANTS: Ransom & Associates, Inc. (the ``Sponsor''), The Random 
Municipal Trust-Multi-State Series, Ranson Unit Investment Trusts 
(formerly, EVEREN Unit Investment Trusts), The Kansas Tax-Exempt Trust, 
Kemper Tax-Exempt Income Trust, Ohio Tax-Exempt Bond Trust, Kemper 
Government Securities Trust, Kemper Bond Enhanced Securities Trust, any 
future UIT sponsored by the Sponsor (collectively, the ``Trusts''), and 
their respective series (each, a ``Series'').\1\
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    \1\ Any future Trust that relies on the relief will comply with 
the terms and conditions of the application.

FILING DATES: The application was filed on March 7, 1997, and amended 
on July 30, 1997. Applicants have agreed to file an amendment to the 
application, the substance of which is incorporated in this notice, 
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during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on November 24, 
1998, and should be accompanied by proof or service on applicants in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of the date of a hearing may request notification by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549. 
Applicants, 250 N. Rock Road, Suite 150, Wichita, KS 67206.

FOR FURTHER INFORMATION, CONTACT: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. Each Series will be a series of one of the Trusts, each a UIT 
registered under the Act. The Sponsor will be the sponsor of the 
Trusts. Each Series is created by a trust indenture among the Sponsor, 
an evaluator, and a banking institution or trust company serving as 
trustee (the ``Trustee'').
    2. The Sponsor acquires a portfolio of securities, which it 
deposits with the Trustee in exchange for certificates representing 
units of fractional undivided interests in the portfolio (``Units''). 
The Units are offered to the public by the Sponsor, underwriters, and 
dealers at a price which, during the initial offering period, is based 
upon the aggregate market value of the underlying securities plus a 
front-end sales charge. The sales charge currently ranges from 1% to 
4.9% of the public offering price. The maximum charge usually is 
subject to reduction in compliance with rule 22d-1 under the Act under 
certain stated circumstances disclosed in the prospectus, such as for 
volume purchases.
    3. The Sponsor maintains a secondary market for Units, and 
continually offers to purchase these Units at prices based upon the bid 
side evaluation of the underlying securities. Investors may purchase 
Units on the secondary market at the current public offering price plus 
a front-end sales charge. If the Sponsor discontinues maintaining such 
a market at any item for any Series, holders or Units (``Unitholders'') 
of such a Series may redeem their Units through the Trustee.

A. Deferred Sales Charge (``DSC'') and Waiver of DSC Under Certain 
Circumstances

    1. Applicants request an order to the extent necessary to permit 
them to impose a DSC, and waive the DSC under certain circumstances. 
Under applicants' proposal, a portion of the DSC would be collected 
``up front,'' i.e., at the time an investor purchases Units, and the 
balance would be collected subsequently in equal installments 
(``Installment Payments'') from Unitholders' distributions on the 
Units. The Trustee will withdraw the Installment Payment from the 
distribution income and pay the amount

[[Page 60031]]

directly to the Sponsor. If distribution income is insufficient to pay 
an Installment Payment or if a Series' portfolio consists of non-income 
producing securities, the Trustee will have the authority to sell 
portfolio securities in an amount necessary to pay the Installment 
Payment.
    2. When a Unitholder redeems or sells Units, the balance of the 
Unit holder's Installment Payments on the redeemed Units will be 
deducted from the proceeds of the redemption or sale. When calculating 
the amount due, it will be assumed that Units on which the DSC has been 
paid in full are redeemed first. With respect to Units on which the DSC 
has not been fully paid, the DSC will be applied on the assumption that 
Units held for the longest time are redeemed or sold first. Under 
certain circumstances, the Sponsor may waive the DSC in connection with 
redemptions or sales of Units. These circumstances will disclosed in 
the prospectus for the relevant Series and implemented in accordance 
with rule 22d-1 under the Act.
    3. Each Series offering Units subject to a DSC will include in its 
prospectus the disclosure required in Form N-1A relating to deferred 
sales charges, modified as appropriate to reflect the differences 
between UITs and open-end investment companies. The prospectus will 
state the maximum amount of DSC per Unit. The prospectus also will 
disclose that portfolio securities may be sold to pay the DSC if 
distribution income is insufficient to pay the DSC, and that the 
securities will be sold pro rata or that a specific security will be 
designated for sale.

B. Exchange Option and Rollover Option

    1. Applicants request an order to the extent necessary to permit 
Unitholders of a Series to exchange their Units for Units of another 
Series (the ``Exchange Option''), and Unitholders of a Series that is 
terminating (each, a ``Rollover Series'') to exchange their Units for 
Units of a new Series of the same type (the ``Rollover Option''). The 
Exchange Option and Rollover Option would apply to all exchanges of 
Units sold with a front-end sales charge or a DSC.
    2. A Unitholder who purchased Units under the Exchange Option or 
Rollover Option would pay a lower sales charge than that which would be 
paid for the Units by a new investor. The reduced sales charge imposed 
will be reasonably related to the expenses incurred in connection with 
the administration of the DSC program, which may include an amount that 
will fairly and adequately compensate the Sponsor and the participating 
underwriters and brokers for their services in providing the DSC 
program.
    3. Pursuant to the Exchange Option, an adjustment would be made if 
Units of any Series are exchanged within five months of their 
acquisition for Units of a Series with a higher sales charge (the 
``Five Months Adjustment''). An adjustment also would be made if Units 
on which a DSC is collected are exchanged for Units of a Series that 
imposes a front-end sales charge and the exchange occurs before the DSC 
collected at least equals the per Unit sales charge on the acquired 
Units (the ``DSC Front-End Exchange Adjustment''). If an exchange 
involves either the Five Months Adjustment or the DSC Front-End 
Exchange Adjustment, the Unitholder would pay the greater of: (a) the 
reduced sales charge, or (b) an amount which, together with the sales 
charge already paid on the exchanged Units, equals the normal sales 
charge on the Units of a Series being acquired (the ``Exchange 
Series'') on the date of the exchange. With appropriate disclosures, 
the Sponsor may waive such payment. Further, the Sponsor would reserve 
the right to vary the sales charge normally applicable to a Series, 
vary the charge applicable to exchanges, and modify, suspend, or 
terminate the Exchange Option or Rollover Option as set forth in the 
conditions to the application.

Applicants' Legal Analysis

A. DSC and Waiver of DSC

    1. Section 4(2) of the Act defines a ``unit investment trust'' as 
an investment company which ``issues only redeemable securities.'' 
Section 2(a)(32) of the Act defines a ``redeemable security'' as a 
security which, upon its presentation to the issuer, entitles the 
holder to receive approximately his or her proportionate share of the 
issuer's current net assets or the cash equivalent of those assets. 
Rule 22c-1 under the Act requires that the price of a redeemable 
security issued by a registered investment company for purposes of 
sale, redemption, and repurchase be based on the security's current net 
asset value (``NAV''). To the extent that an Installment Payment may be 
deemed to cause Unitholders to receive less than NAV upon redemption, 
applicants request relief from section 2(a)(32) and rule 22c-1.
    2. Section 22(d) of the Act and rule 22d-1 under the Act require an 
investment company and its principal underwriter and dealer to sell 
securities only at the current public offering price described in the 
investment company's prospectus, with the exception of sales of 
redeemable securities at prices which reflect scheduled variations in 
the ``sales load.'' Section 2(a)(35) defines the term ``sales load'' as 
the difference between the sales price and the portion of the proceeds 
invested by the depositor or trustee. Applicants request relief from 
sections 2(a)(35) and 22(d) to the extent that the DSC may be paid in 
installments rather than upon purchase.
    3. Under section 6(c), the SEC may exempt classes of transactions, 
if and to the extent that such exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act.
    4. Applicants state that their proposal meets the standards of 
section 6(c). Applicants state that the provisions of section 22(d), 
rule 22d-1, and section 2(a)(35), taken together, are intended to 
prevent (i) riskless trading in investment company securities due to 
backward pricing, (ii) disruption of orderly distribution by dealers 
selling shares at a discount, and (iii) discrimination among investors 
resulting form different prices charged to different investors. 
Applicants assert that the proposed DSC program will present none of 
these abuses. Applicants contend that the deduction of the Installment 
Payments is consistent with the policy of forward pricing. Applicants 
also contend that the amount, computation, and timing of the DSC will 
promote fair treatment of all Unitholders, while permitting the Trusts 
to offer Unitholders the advantage of having a large portion of their 
purchase amount invested immediately. Applicants further note that the 
DSC program will be disclosed in the prospectus of each Series and 
available on the same terms to all investors. Finally, applicants state 
that any waiver of the DSC will be disclosed in the prospectus of each 
Series and implemented in accordance with rule 22d-1.
    5. Section 26(a)(2), in relevant part, prohibits a trustee or 
custodian of a UIT from collecting from the UIT as an expense any 
payment to the trust's depositor or principal underwriter. Because the 
Trustee's payment of the DSC to the Sponsor may be deemed to be an 
expense under section 26(a)(2)(C), applicants request relief under 
section 6(c) from section 26(a)(2) to the extent necessary to permit 
the Trustee to collect DSC payments and disburse them to the Sponsor. 
Applicants submit that the relief is appropriate because the DSC is 
more properly characterized as a sales load than as an ``expense.''

[[Page 60032]]

B. Exchange Option and Rollover Option

    Section 11(a) and (c) of the Act prohibit any offer of exchange by 
a registered UIT for the securities of any other investment company on 
any basis other than the relative NAV of the securities to be 
exchanged, unless the terms of the offer have been approved in advance 
by the SEC or meet the requirements of any rules adopted to regulate 
exchange offers. Applicants request an order under section 11(a) for an 
exemption from section 11(c) to permit the Exchange Option and the 
Rollover Option. Applicants state that the Five Months Adjustment and 
the DSC Front-End Exchange Adjustment in certain circumstances are 
appropriate in order to maintain the equitable treatment of various 
investors in each Series.

C. Net Worth Requirement

    1. Section 14(a) of the Act requires in substance that investment 
companies have $100,000 of net worth prior to making a public offering. 
Applicants state that each Series would comply with this requirement 
because the Sponsor will deposit substantially more than $100,000 of 
debt or equity securities or a combination thereof, depending on the 
objective of the particular Series. Applicants assert, however, that 
the SEC has interpreted section 14(a) as requiring that the initial 
capital investment in an investment company be made without any 
intention to dispose of the investment. Applicants state that, under 
this interpretation, a Series would not satisfy section 14(a) because 
of the Sponsor's intention to sell all the Units of the Series.
    2. Rule 14a-3 under the Act exempts UITs from section 14(a) if 
certain conditions are met, one of which is that the UIT invest only in 
``eligible trust securities,'' as defined in rule 14a-3. Applicants 
state that they may not rely on rule 14a-3 because certain future 
Series (collectively, the ``Equity Series'') will invest all or a 
portion of their assets in equity securities, which do not meet the 
definition of eligible trust securities.
    3. Applicants request an exemption under section 6(c) from section 
14(a) to the extent necessary to exempt the Series from the net worth 
requirement in section 14(a). Applicants state that they will comply in 
all respects with rule 14a-3, except that the Equity Series will not 
restrict their portfolio investments to eligible trust securities.

D. Capital Gains Distribution

    1. Section 19(b) of the Act provides that a registered investment 
company may not, in contravention of such rules, regulations, or orders 
as the SEC may prescribe, distribute long-term capital gains more than 
once every twelve months. Rule 19b-1(a) under the Act permits a 
registered investment company, with respect to any one taxable year, to 
make one capital gains distribution, as defined in section 852(b)(3)(C) 
of the Internal Revenue Code of 1986, as amended (the ``Code''). Rule 
19b-1(a) also permits a supplemental distribution to be made pursuant 
to section 855 of the Code not exceeding 10% of the total amount 
distributed for the year. Rule 19b-1(f) permits one additional long-
term capital gains distribution to be made to avoid the excise tax 
under section 4982 of the Code. Rule 19b-1(c), under certain 
circumstances, excepts a UIT investing in ``eligible trust securities'' 
(as defined in rule 14a-3) from the provisions of rule 19b-1. Because, 
as noted above, the Equity Series will not limit their investments to 
``eligible trust securities,'' they will not qualify for the exemption  
in  paragraph  (c)  of  rule 19b-1.
    2. Applicants request an exemption under section 6(c) from section 
19(b) and rule 19b-1 to the extent necessary to permit capital gains 
earned in connection with the sale of portfolio securities to be 
distributed to Unitholders along with the Equity Series' regular 
distributions. In all other respects, applicants will comply with 
Section 19(b) and rule 19b-1.
    3. Applicants state that their proposal meets the standards of 
section 6(c). Applicants assert that any sales of portfolio securities 
would be triggered by the need to meet Series expenses, DSC 
installments, or by requests to redeem Units, events over which the 
Sponsor and the Equity Series do not have control. Applicants further 
state that reports to Unitholders that will accompany each distribution 
pursuant to rule 19b-1 will disclose the sources of the distribution.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. DSC and Waiver of DSC

    1. Each Series offering Units subject to a DSC will include in its 
prospectus the disclosure required in Form N-1A relating to deferred 
sales charges, modified as appropriate to reflect the differences 
between UITs and open-end investment companies.
    2. Any DSC imposed on Units issued by a Series will comply with the 
requirements of rule 6c-10(a) (1) through (3) under the Act.

B. Exchange Option and Rollover Option

    1. Whenever the Exchange Option or Rollover Option is to be 
terminated or its terms are to be amended materially, any holder of a 
security subject to that privilege will be given prominent notice of 
the impending termination or amendment at least 60 days prior to the 
date of termination or the effective date of the amendment, provided 
that: (a) no such notice need be given if the only material effect of 
an amendment is to reduce or eliminate the sales charge payable at the 
time of an exchange, to add one or more new Series eligible for the 
Exchange Option or Rollover Option, or to delete a Series that has 
terminated; and (b) no notice need be given if, under extraordinary 
circumstances, either (i) there is a suspension of the redemption of 
Units of the Exchange Series or Rollover Series under section 22(e) of 
the Act and the rules and regulations promulgated under the Act, or 
(ii) an Exchange Series or Rollover Series temporarily delays or ceases 
the sale of its Units because it is unable to invest amounts 
effectively in accordance with applicable investment objectives, 
policies and restrictions.
    2. An investor who purchases Units under the Exchange Option or 
Rollover Option will pay a lower sales charge than that which would be 
paid for the Units by a new investor.
    3. The prospectus of each Series and any sales literature or 
advertising that mentions the existence of the Exchange Option or the 
Rollover Option will disclose that the Exchange Option and Rollover 
Option are subject to modification, termination or suspension, without 
notice except in certain limited cases.

C. Net Worth Requirement

    Applicants will comply in all respects with the requirements of 
rule 14a-3, except that the Equity Series will not restrict their 
portfolio investments to ``eligible trust securities.''

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-29784 Filed 11-5-98; 8:45 am]
BILLING CODE 8010-01-M